1. Field of the Invention
The present invention relates to methods and systems for efficiently performing compliance evaluations of asset trades and, in particular, systems and methods that utilize a novel configuration and methodology to improve performance and reduce cost.
2. Description of the Related Art
Asset trading institutions such as investment banks and hedge funds frequently manage many accounts or portfolios on a day to day basis. While portfolio management can include a number of different functions, the most important of these relate to rebalancing the make-up of holdings in the portfolio by trading assets, such as securities, in order to maximize the value of the portfolio. The holdings in a portfolio are changed according to, among other things, objectives set by the trading institution and/or customers. Additionally, the Securities and Exchange Commission (SEC) and other governmental bodies set forth regulations concerning what kinds of assets and the amounts of certain assets that various entities can trade or hold. Institutions will, accordingly, establish a number of trading rules associated with its firm, each portfolio, or account that limit the way in which assets may be traded in accordance with the objectives and regulations relevant to that account.
Trading rules can typically be divided into two kinds of rules: calculated rules and restriction rules. Calculated rules can relate, for example, to the size of an account's position of a particular asset. For instance, a firm or trader may assign a rule to an account that requires that its holdings consist of 5% to 10% technology stocks. Thus, to enforce this rule, a calculation must be made for proposed trades to see if the resulting rebalancing will result in a portfolio that consists of 5% to 10% technology stocks.
Unlike calculated rules, restriction rules do not relate to the size of an account's position of a particular asset, but, rather, to whether an account trade can be placed at all. For example, a restriction rule might prohibit a given account from buying or holding foreign securities. An account may have multiple calculated and restriction rules associated with it.
While some trading rules are merely indicative of a certain trading strategy and can be bent from time to time, other trading rules (e.g., the ones stemming from governmental regulations) must be adhered to at all times. For instance, an account holder might be legally prohibited from ever owning certain kinds of assets (e.g., foreign securities) and subject to stiff fines or legal sanctions if they ever do own the prohibited assets. Accordingly, institutions should evaluate a proposed trade order for compliance with the trading rules prior to their execution of the order.
Given the complexity of the various trading rules and the cost of latency when making trades (executing trade orders), computerized compliance systems have been made to perform the compliance evaluations or checks. Such compliance systems may be integrated with order management system (OMS) or execution management system (EMS) products and can receive proposed trades and return an indication whether the trade complies with a set of rules.
When a trader decides to make a trade, the trader enters the pertinent information about the trade into a trading terminal and submits the trade to, for instance, an OMS. Prior to executing the trade, the trade information is submitted to a compliance system in order to evaluate the pending trade's compliance with the pertinent trading rules. The compliance system typically queries a data storage facility such as a database to obtain the rule information required for it to determine whether the trade complies with the trading rules, makes a compliance determination, and sends a response indicating compliance or non-compliance back to the OMS. Even with high performance computers and network connections, the prior art compliance process takes time—an amount of time that can be entirely unacceptable in a fast moving market.
The time required to check the compliance of a potential trade with trading rules could be reduced significantly if compliance could be evaluated locally at the trading desktop terminal rather than by the compliance system. However, presently it is prohibitively costly in terms of hardware and system resources to provide all of the information required to perform compliance checking locally.
Thus, there exists a need in the art for new and improved systems and methods capable of evaluating compliance with trading rules at higher speeds and lower cost.